American States Water Co (AWR) 2003 Q3 法說會逐字稿

Please stand by. We're about to begin. Good day, everyone, and welcome to this American States Water Company third quarter 2003 earnings call. This call is being recorded. Today's presentation will be available for replay at 5:00 p.m. Eastern Time, through November 6th at midnight. You may access the replay by dialing 719-457-0820, or 888-203-1112, and entering the pass code 659986. Again that was 719-457-0820 or 888-203-1112 and pass code 659986. At this time, I would like to turn the call over to Bud (ph) Harris, Vice President Finance and Chief Financial Officer. Please go ahead.

Thank you, Jenny. Good morning, everyone. Both Floyd and I are here and we'd like to get started. As usual, following the conclusion of our prepared remarks, the call will be opened up for questions.

I would like to remind you, however, that certain matters discussed during this conference call are forward-looking statements intended to qualify for the Safe Harbor from Liabilities established by the Private Securities Litigation Reform Act of 1995. I ask that you review the forward-looking information disclosure in our form 10-K and 10-Qs on file with the SEC. The factors underlying the company's forward-looking statements are dynamic and as such are subject to change. Therefore these forward-looking statements speak only as of the date they are given. The company is under no obligation to update them, however, we may choose from time to time to update them and if we do so, we will disseminate the updates to the investing public. With that said, let's get started. During the third quarter of 2003, total operating revenues increased by 3.4 percent or about $2.1 million from the third quarter of last year. This increase reflects a 3.1 percent increase in water revenues due to rate increases in region two of our Southern California Water Company unit that were effective in early 2003, as well as a 6.8 percent or about $400,000 dollar increase in electric revenues.

The increase in electric revenues reflects new rates implemented during the third quarter of 2002, authorized by the California Public Utility Commission to cover purchase power costs under our various supply agreements. Partially offsetting the water rate increase was a 2.8 percent decline in water sales volumes between the two quarters, and a 2.4 decrease in kilowatt hour consumption between the comparative quarters. Turning to the expense side, total operating expenses for the quarter ended September 30, 2003, increased by 3.6 percent, compared to the quarter ended September 30th, of last year. Due to increased Administrative and General expenses and increase in supply costs, and a $420,000 unrealized loss on purchase power contracts, at the company's Bear Valley Electric Division. Administrative and general costs increased due to higher FAS 87 expense related to the company's pension plan, resulting from reduced discounts and assumed earnings rates which contributed an additional $373,000 to expense for the third quarter of 2003. As well, higher legal and consulting costs associated with the company's ongoing efforts in the area of privatization of water and wastewater services at military bases added an additional $745,000 as compared to the same quarter last year. Taxes on income decreased 25 percent, due to a lower effective tax rate and a trueup of return to accrual adjustment, of about $800,000. Interest charges this quarter, increased by 2.9 percent over the same quarter last year, due principally to higher short-term bank borrowings incurred to finance Capital Expenditures. The quarter's net result is a 2 percent increase in basic and fully diluted earnings per common share to $.51 per share, as compared to 50 percent -- I'm sorry, compared to $.50 per share reported in the third quarter of last year. I would like to turn now to our 12 months reported results.

Results reported for the 12 months ended September 30th, 2003, indicate a decrease in basic and fully diluted earnings of 12.4 percent to $1.13 per share as compared to $1.29 per share recorded for the 12 months ended September 30th, 2002. Total operating revenues for the year ended September 30th, of this year, increased by 2.7 or about $5.7 million. Revenues from water operations decreased to a -- due to a 3.6 decline in water consumption, caused by water and cooler temperatures in most of our California service areas during 2003, as well as the termination of a surcharge in December of 2001 that was previously authorized to collect supply costs increases and, again, in Southern California Water Company's region two. Our Chaparral City Water Company unit in Arizona contributed $5.9 million in revenues for the 12-month period; although that amount was about 7.5 percent less than the prior year, due to a 6.3 percent decrease in water consumption in that Arizona unit. Revenues from Electric Operations increased by 32.3 percent, or about $6.1 million. As I previously mentioned, the higher revenues reflect rate increases authorized to recover purchase power costs. As compared to the 12 months ended September 30th, 2002, total operating expense for the 12 months ended this year, increased by 4.2 percent. Driving this change are a number of items, including a 5.6 percent increase in purchase water costs, higher electric supply costs amortized into expense as revenues are collected pursuant to a California Public Utility Commission order, an increase in depreciation expense, and maintenance expenses, and an unrealized pretax loss of approximately $1.7 million related to purchase power contracts at the Bear Valley Electric Division of our company. Offsetting these increased expenses is a decrease in income tax expense, due to lower pretax Operating Income, and the re -- I'm sorry, the trueup of return to accrual adjustment of about $800,000, mentioned earlier. As well as a 4.7 percent decrease in Administrative and General expense. This lighter decrease is a function of our returning to income in December of 2002, of approximately $6.5 million in reserves, booked against nonrecovery of purchase power expense. You will recall that we originally booked the reserves since our contractual price was $95 per megawatt hour and we were uncertain that we would be able to fully recover that amount through rates; however, the restructuring of the contracts resulted in a lower cost than the $77 per megawatt hour that was originally approved in the settlement with the PUC.

We expect Administrative and General expenses to increase in calendar 2003, over calendar 2004, due to the reversal of the reserve not being included in the 2003 results. In addition, for this year, the company expects to have incurred about $2 million of legal and consulting expense, again related to its continuing efforts in the privatization of water and wastewater services at military bases across the United States, and an additional $1.1 million this year of pension and benefit expense. Interest charges impacted by the additional debt placed in December of 2001, at our Southern California Water unit increased by approximately 6.5 percent for the 12 months ended this year, as compared to last year. Before turning this call over to Floyd, I would like to briefly address further the unrealized losses that negatively impacted quarterly and 12-month earnings. The unrealized losses, and possible gains, I guess, at some point, at Bear Valley Electric are expected to impact earnings during the life of the contracts with Pinnacle as Capital, as we’ve often said in previous teleconferences. The end result is projected to be a net zero impact on Bear Valley Electric earnings at the end of the contract period in 2008. These contracts qualified as derivative instruments under statement -- Financial Accounting Standards number 133, which is accounting for derivative instruments and hedging activities. The unrealized loss of $420,000 for the quarter and $1.7 for the 12 months results from lower forecasted forward market prices compared with current contract prices that results in a calculated cumulative unrealized loss for these contracts. Even though there's no cash impact, we are evaluating alternatives to minimize the impact that future unrealized losses or gains might have on earnings. We would hopefully have something to report within the next three to six months on that. We entered into those contracts for the expressed economic purpose of lowering supply costs to our customers and, frankly, from an economic perspective, we have been successful; however, application of FAS 133 accounting treatment will continue to affect both negatively and positively the company's two earnings picture through 2008, absent any FAS 71 protection that we might seek from the California Public Utility Commission.

It is, therefore, important for each of to you realize that the unrealized losses and gains will not impact the company's ability to pay Dividends, nor should, in our estimation, it materially affect the markets's estimate of the company's value. Since American States is not in the energy trading business. We are primarily a public utility company, providing water and electric services, and as such, our earnings are impacted by weather and the amount and timeliness of rate increases to recover Capital and Operating costs, and not on favorable or unfavorable price swings in the energy futures market. We ask that you factor into your recommendations and analyses the underlying utility value of our company. Our earnings are driven by our ability to control and recover operating expenses and by earning a return on invested Capital. The company continues with its construction program, primarily for improvement, renewal and replacement of infrastructure at its Southern California Water Company unit. Budgeted Capital projects for 2003 were approximately $80 million, and Capital Expenditure for 2004 are estimated at approximately $65 million. It will, therefore, be necessary to issue approximately $30 million in additional equity in the very near future to provide external funding for these projects. Given that we anticipate significant rate increases from the California Public Utility Commission next year, we believe the additional equity, which will initially be used to pay down outstanding bank borrowings will be accretive. The Public Utility Commission rate case processes allows a water utility to forecast its need for additional equity over a three-year rate case cycle. Results for calendar 2003 will be negatively impacted by the wet and cool weather that we estimate has reduced earnings by $.04 and $.18 per share respectively for the three and 12 months ended September 30th of this year. In addition, until we have new rates in place that provide recovery of water supply costs, the effects of elimination of the balancing account by the California Public Utility Commission will continue to negatively impact earnings.

We estimate that the 12 month numbers reported today would be approximately $.22 per share higher, if the balancing account mechanism were still in effect. We are hopeful that much of these supply costs will be recovered in future years through the rate case process. This said, we do believe that currently available in 2003 earnings estimates for American States Water Company are reasonable, given this listing of negative impacts. As you will soon hear from Floyd, earnings growth in 2004, will be driven by a number of rate increases still pending before the CPUC and as such we will not be commenting at this time on earnings estimates for 2004. I would now like to turn the call over to Floyd.

Okay, thank you, Bud. Good morning, everyone or good afternoon, wherever you might be. As discussed in past teleconferences our financial results are significantly dependent on actions taken by the California Public Utility Commission.

We continue to work diligently with the PUC staff in promoting timely completion of file rate cases and on various other matters. I would like to review regulatory activity that will promote future growth and earnings as follows: in June 2003, the PUC approved our recovery of the pre-November 2001 balance of $2.1 million in the supply cost balancing accounts at that time, and it issued procedures for recovering what is now known as the memorandum supply cost accounts for balances accumulated after that date, after November, 2001. Pursuant to that order, recovery of the memorandum water supply costs will be reduced if the company earns more than its authorized rate of return. In addition, we have filed advice letters on September of this year, for the undercollected balance of December 31, 2002, approximating $2.6 million. We are awaiting final decision following PUC review. Amounts included in the memorandum supply cost account are not collected until a rate order is issued by the PUC. Upon receiving approval from the Commission, we will recognize the authorized undercollected amount of $2.6 million immediately as recoverable supply costs on our books. Thus favorably impacting income.

Additional general rate case applications and advice letters as allowed under the new regulations continue to be pursued. In October of last year, we filed for an increase in water revenues, in the customer service areas that comprise region three of our Southern California Water Company unit, as well as for recovery of costs associated with general office functions. If approved as stipulated, these requests would increase revenues by approximately $13 million annually. We are unable to predict the exact amount of increase that will ultimately be approved by the Commission, but we're hopeful that a decision will be out before year-end, with rates effective soon thereafter. We also filed an application to increase water rates in region two customer service areas on September 11th, of this year, which was accepted by the PUC on October 6th. The new water rates in this filing, if approved in total, would generate initial annual increase in revenues of $15.4 million. The decision is not expected until the third quarter of 2004. On October 27th, 2003, we filed an application to the PUC requesting an inflationary increase of approximately $390,000 annually for three customer service areas of Southern California Water Company's region one. And a request for long-term amortization of the costs included in the Aero Jet litigation memorandum account net of any reimbursements received.

All of these filings will bring supply cost current and update our water resource mix which will help stem the negative impacts of the elimination of the balancing account. The factor that has consumed a lot of time and energy is the water quality-related litigation. In our last teleconference, we reported the comprehensive settlement with the state of California and certain of its agencies settling our lawsuit alleging that the state had substantially participated in a project to inject chemical pollution into portions of the Sacramento County ground water basin, and that pollution is progressively destroying the ground water supply in our company's Rancho Cordova water system. And I'm pleased to report that we have received in full the $2.475 million settlement from the state of California of all of our claims against the state. Regarding another of our water-related litigation issues, we announced in a press release recently and in an 8k filing that the company had reached a settlement in principle with the Aero Jet General Division of Gencorp, Inc. This memorandum of understanding is a guiding document designed to resolve all issues surrounding the lawsuit we filed against Aero Jet General in October of 1999. At this time we are not at liberty to release the terms of the agreement, due to its confidential nature; however, we will disclose the terms of the agreement upon final approval by all parties which we expect to be completed before the end of this year. On July 10th of 2003, the PUC approved their certificate of public convenience and necessity filed in March of 2002, seeking authorization to construct an 8.4 megawatt natural gas-fueled generation facility for the company's Big Bear Electric Division. The Capital cost of the generating facility is estimated to be approximately $13 million. The PUC's order authorizes construction and enables Southern California Water to file a rate application to generate an annual revenue increase of about $2.4 million. The company will file for increased rates using a special filing called a Major Adjustment Clause or MAC that should result in at least 75 percent of the revenue requirement related to this facility being included in rates. The remainder will be subject to recovery in a general rate case filing for Bear Valley Electric.

I would now like to briefly update you on the water supply situation. We are pleased to report that water supply for California and Arizona is much approved -- improved over the last year. California reservoirs were at 81 percent of normal at the end of September this year. And the runoff was at 101 percent of average as opposed to last year's 73 percent of average. The two primary components affecting our water supply, and therefore, our revenues are precipitation levels and imported water allocations. Although the National Oceanic and Atmospheric Association is predicting warmer and drier conditions for this winter, our primary imported water provider, The Metropolitan Water District of Southern California has publicly stated that Southern California should have ample water supplies for 20 years.

On October 17th, 2003, NWD, the federal and state governments and three other water agencies signed the Water Quantification Settlement Agreement, QSA it's known as, which should resolve the long fought water rights battles and allow California to once again have access to surplus Colorado river water over the next 13 years. Although this action secures future accessibility, it is not a guarantee that mother nature will send wet years instead of dry years, and to that end, NWD has also indicated that it is prepared to help the region through any reductions in allocations or dry years by stepping up a number of efforts, including desalination,, conservation, recycling, transfer and storage. Arizona precipitation show marked improvement over the prior year. Closing the current water year with levels varying from 70 to 89 percent of normal, with the Colorado river area coming in at about 82 percent of normal. In addition, Arizona shares the benefits of the Arizona Water Banking Authority, that successfully banked the state's full allocation of Colorado river water entitlement last year and anticipates the same results this year. This hedge against drought conditions is further enhanced by the fact that the priority for curtailment begins with the agricultural users and creates an additional buffer for the company's Chaparral City Water Company domestic water supply. At this time, in tough times in California, I would be remiss if I did not touch on the impacts that the wildfires in Southern California have had on our Southern California Water Company. We have several water customer service areas where fires are present. At this date, we've had minimal damage to our facilities and have been able for the most part to provide sufficient pressure and water supply necessary for firefighters to do their jobs, and for others to go about their normal daily routine. Of the more than 2,100 homes lost in the numerous wildfires, 62 have been located in two of the company's service areas.

The governor has declared the wildfires to be the worst disaster ever in the state's history and our Bear Valley Electric area, located in the mountains North of Los Angeles, our people have stayed on the job to make certain that electric service continues. This is in spite of isolated minor damage to certain distribution facilities, and the potential for greater damage if the fires fully reach our service area. I'm very proud of the women and the men of this company that meet the needs of our communities on a daily basis, and in times of crisis, such as these. We will be filing with the California Public Utilities Commission for recovery of the extra expenses incurred in meeting these community needs. These costs will be accumulated in Catastrophic Events Memorandum Accounts and amortized pursuant to prescribed procedures after review by the PUC. Before concluding with the prepared remarks today, Bud and I would appreciate your support in reminding your clients why American States Water Company belongs in their investment portfolio.

Solid total return prospects, growth opportunity, and a management that's dedicated to meeting the needs of shareholders and customers. In that regard, I'm pleased to inform you that using SEC guideline for reporting financial performance, $100 invested in shares of American States Water Company at December 31, 1998, would be worth $156.14 at September 30, 2003. By contrast that same $100 invested in the S&P 500 would be worth only $86.64 today. I want to thank you all for your time and attention and I'll now turn the conference over to the operator to entertain any questions you may have. Thank you.

Thank you. Ladies and gentlemen, if you would like to ask a question today, press star one on your touch-tone phone. Again, star one for any questions or comments that you may have. If you're using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again star one for questions and comments. We will pause for just a moment to assemble our question queue. We'll go first to David Chancer with Janney Montgomery Scott.

Hi, good morning.

Good morning, Dave.

Hi, David.

A question about the rate case. Are there any issues in this rate case that stick out like a sore thumb that you would anticipate either the commission or the consumer folks to particularly be pointing to?

Oh, boy. That's a tough one.

I didn't promise I would ask easy questions.

I would say they're more controversial is the fact that rates are going up and people have a hard time understanding with inflation being down the way it is, why water rates continue to escalate at rates higher than inflation rates. And quite frankly, one of the biggest reasons was mentioned by Bud, that we've got quite a very aggressive Capital Improvement Program, where, in fact, the rates are set on original costs of the facilities when they went into service.

In many cases, we're replacing pipelines that could be -- could have been placed into service in 1930, for example, at $1 or maybe $2 a foot total cost, and today's costs we're replacing those same pipelines at, perhaps $100 to $150 a foot. So you’ve got all those tremendous number of years of pent-up inflation hitting the water rates today, causing rates to escalate much faster than current inflation rates.

Yeah. I guess what I was kind of driving at was whether there were items of property or equipment that might not be deemed to be used and useful or --

No.

Or whether there would be a list of expenses that might be particularly challenging to them.

Not to my knowledge, Dave. You know, plant -- we do a pretty thorough cost benefit analysis on almost all additions to plant and some of them have problems with that. If they have any, it may be just as to timing and they will generally defer those to a process we have called advice letters. It's kind of is a -- an after-the-fact approval.

Mm-hmm.

Instead of the usual forward-looking.

This is for plant equipment that's not yet put in place?

That’s correct. Right. Yes.

You don't accept quantifiable and known changes then?

No. You know, we did file this case for a 12.45 percent ROE. That certainly caught their attention and, you know, realistically it will come down to somewhere, I would suspect in the final of about 10 percent. And -- but other than that, you know, the -- the increase cost of healthcare, and just general welfare benefits including the pension were an issue, but, you know, going through it, looking at the actuarial reports they seem to not have any problem with those in the end other than it's just like, geez.

Mm-hmm.

You know? I can't tell you that in my time up there, that -- nor have I heard from our VP of Regulatory Affairs that there was any one or two items that was just so difficult for anybody to get passed.

Okay. Well, you know, above and beyond that, you were indicating that if it's fully litigated it will go to third quarter of next year, right?

Yeah, that's the one we just filed.

It's the one we just filed. It takes about a year to get to anywhere.

Okay, well, I guess my next question would be then with the new administration if you want to call him the new administration in Sacramento, are there any anticipations or is there any anticipated changes to the Commission between now and then that could affect the outcome of the case?

I would say not, only because the current Commissioner level -- they have five Commissioners appointed by the governor, of course.

Mm-hmm.

And the terms are six-year terms. The earliest, I believe, is at the end of 2004, would be the earliest time that governor-elect Schwarzenegger would be able to put in a choice of his own.

And to the best of your knowledge, no one is showing any indications of stepping down?

Not that we've heard, no.

Okay. Well, that's it, guys. Thanks.

Sure thing.

We'll take our next question come from Debra Coyne with Schwab Capital Markets.

Good morning, guys. Just to follow up on Dave's question, as you have these rate cases working through, I think, Bud, did you say Capex for this year was $80 million and next year is 65?

That's correct.

So the $80 million, did you have a new plant or something?

No. It's just an inordinately large year with -- with some special items. There have been some infrastructure replacement programs pursuant to a [indiscernible] case we had in one of -- some kind of waters operating areas that added about $13 million to that above our general ongoing stuff.

Okay.

But that's -- that's how we get these annual rate increases, as we mentioned earlier.

Sure. Right.

And then the rest of it -- so you’re back down if you do that into the $60 million dollar level, so we're about on the standard.

And that about where it should be.

That's about where it you be.

On a three-year go forward.

That's right.

60 to 70. All right.

I think we also had a special item in our rate case for security matters.

That's correct, Floyd.

Which was about -- a total for company-wide of about $15 million so that also added to the total.

Okay. And then you should be -- because you've gone through the vulnerability assessments and all that that's pretty much done? Security, additional security spending.

Yes, actually, what we're expecting as part of the rate case that was filed a year ago, is a final decision from the PUC on that $15 million.

Okay.

And from what we hear from our own people, in the reg affairs (ph) area, that the PUC was favorably inclined to allow those projects to go forward, but, perhaps spread them over three years instead of all in one year. So that -- we're expecting the proposed decision to come out from the PUC on last year's cases as filed sometime in the next two weeks.

Okay. And that's separate from the other things that you just ran through?

Well --.

Because it is a go forward? It is a go forward decision not on past expense.

Right, it's all forecasted costs.

Okay.

That's one good thing, as much as we complain about regulation, California does allow you to forecast your equity needs and your Capital budget for three years. And it's all billed into the forward rate making process.

Right. So if I can just then run back through, I'm trying to - given all these kind of special items, if you will, trying to look at normalized earnings, rates. I guess from what you said, Bud, you're -- your estimates on weather, plus the balancing account impact is -- was a total of about $.40.

Yeah. I would guess for the trailing (ph) 12 months that’s right.

Okay. And obviously weather is what it is. On the balancing account, is the $2.6 million filed -- I haven't worked this down through, but does that basically make up the $.22

That would make up a -- no. It would make up a piece of it.

Okay. It's a --

Yeah, but the accounting --

Because the $2.6 million obviously annual revenues it gets recovered so basically you get -- that gets collected you start recovering it on multiple years.

That's correct. That's correct.

Okay.

That's correct.

Okay.

So it’s through that and also as these cases are approved the current resource mix, because as you recall, we buy part of our water and then produce part of our water we sell out of our own wells.

Right.

And there have been, due to various reasons, some changes in those mixes from cases that were filed, say, three or four years ago.

Mm-hmm.

And so once those become current and we start recovering costs that are current, as well as costs based upon the current mix, then I think you will see that -- that drag on earnings because of the lack of the balancing account protection mechanism. It will go away.

So you may still have some more volatility, but basically it won't be -- it won't be such a lag effect?

Right. Because we -- we will at least have something more current.

Right.

Yeah.

In terms of your current actual supply costs.

Correct. That is correct.

Okay. All right, so you should -- basically with all of these filings, you think you will be there by the end of next year?

Yes. Mm-hmm.

Roughly? On the electric costs, and given your power contracts and the volatility that you mentioned, can you quantify what the EPS impact of that would have been for the quarter in the last 12 months?

Let's see, I know it cost us about $420,000, so it's two --.

Guess I can run my own math but... But just as an -- I can figure it out. If you don't have it in front of you.

I don't have it handy but you know we can do it real quick.

Yeah, it's about 1.5 cents on a quarterly basis.

A quarterly basis and then 176 -- $10 million -- it's about $.08 cents.

Okay.

$.08 to $.09 on a 12-month --

For the last 12 months so that's another unusual piece.

Right and right now our estimates that we get for future prices will tell us that -- on a 12-month going forward basis, the $.08 is still going to be there, unless we can get some -- some kind of regulatory protection.

Right. So basically for '04, it should be roughly at the same levels.

Yes, right now, that’s correct. But then you read where gas prices may go up, which is bad for the rest of the world but good for the accounting on these contracts. It's tough to tell but that's what we're contemplating right now.

Okay. That's helpful. I'm trying to gauge in terms of earnings direction. And then my last question is you mentioned the costs that you're incurring as you pursue these military base contracts. Can you talk about the opportunity that you see there, you know, it’s kind of what you are after in terms of timing and potential size?

Well, yes, I can talk a little bit about it.

Or as much as you can.

We have been, frankly, pretty active in looking at a number of military bases in -- in all branches of the service, Navy, Army, and Air Force. When the concept of privatization was originally put out, it was over a time period that really probably would have been ending in the beginning of 2005. A lot of military branches, I guess, didn't want to accept it, didn't want to believe that it was going to happen. There was a lot of feet dragging. But, Secretary Rumsfeld has made it clear that that is what will happen.

And so now, there has been a significant uptick in the amount of RFPs coming out the Department of Defense agencies to prioritize these things. We have had, frankly, negotiations with several bases that have gone as long as two and a half years. We are very close, we feel, to getting our first and would anticipate that early next year. And we think we have good shots at several other contracts we now have out, because there is -- there is pressure to get these things resolved, and, you know, off the government's roles and into private hands.

But they don't have hard and fast deadlines?

The deadlines --

In other words, will they all get done next year?

It will not all get done next year.

No.

It is going to be moved out probably another two years.

Mm-hmm.

But one thing that has not changed is -- is there is a -- very much a strong mandate to get the RFPs out. And then once the RFP is out, it takes quite a while. You have to physically go on site to do your engineering and operating assessments, then you put your bid in.

They generally will pick one, two, maybe three that they continue negotiations with. Eventually it comes down and the process just takes -- it takes a long time, a lot of lawyers, and -- so that's where we've been spending a lot of this money but we really do believe that the fruits of that investment are going to start panning out here in the very near future.

Because once you invest in understanding the military procurement process, then the next one after that and the next one after that gets easier.

They get easier. That's right. You touch on all the buttons, and so all you are faced with then is making sure that you've ticked and -- and checked everything so that it all meets the FARs and everything else that the procurement process likes to see.

And the other good thing about it is that they are not five-year contracts. They are longer term, which fits more into our strategic objective. I think they are 50 years contracts, Bud, am I right?

Most of them are 50 years. There are a couple of 25-year ones out there, but almost all the ones are 50 years.

Yeah. So that's definitely beyond our investment horizon. Can you just, to wrap up on that, can you quantify at all the -- say, the dollar value of the work that you're bidding on, just to give some sense of what's out there in terms of an annual revenue basis?

You know --

Roughly? I mean, like is it $2 million or $20 million? Or just some sort of scope of, you know, what's out there in terms of revenue potential? Not trying to gauge how much you're likely to win but just what you're bidding on?

Well, I suppose -- would it be -- what we have --

Even in a range. I was trying get some general sense of, you know, what the size of this opportunity is.

On the ones that are active, there are probably about -- I'm going to say between $3 and $4 billion of revenues over their 50-year life.

That's real money.

Yeah.

Are you seeing a lot of competition?

We see some. We see some, particularly on the larger ones.

Mm-hmm.

We see some of the larger engineering houses and things like that.

Right.

But it's a very competitive business, and, you know, half a man year makes a big difference in winning these things.

Yeah.

So it really is a very competitive and thin-lined world.

So -- all right, I will leave that issue alone but basically the idea is, you know, you've been investing in this, you've been doing the bidding and we should hear some news on this by early next year.

Yes.

Okay. Thank you.

Once again, ladies and gentlemen, that was star one for questions or comments. We'll go next to Neil Colton with A. G. Edwards.

Good morning.

How are you?

I just wanted a clarification. I think you had mentioned this earlier but I missed it. On the region three rate case currently making its way through the CPUC, was that a $13 million annualized rate increase? Was that what was requested or a proposed settlement?

That's the proposed settlement.

Okay.

I forget exactly the requested dollars were closer to $22 million, I think.

That's about right.

Okay. And -- okay. Thanks. That's all I had.

We'll go next to Stewart Sharp with Standard & Poors.

Hi.

Hi, Stewart.

I wanted to know if you have any estimates on the costs incurred for the wildfires that you will be filing for?

We really don't yet. We -- to be very honest with you, we have spent some overtime. We've incurred some additional expenses, but right now, Floyd, unless you have more current information, Stewart, I'm not going to tell you, it's not a whole lot just yet.

Yes, I’ve only seen a couple of numbers coming in as far as a couple of reservoirs where the roofs were damaged by fire and it doesn't appear as though we can repair, probably have to replace, but it's in about the $200,000 range what I've seen so far. Statewide, the governor is coming out with numbers in excess of $2 billion of damage to structures and so on. Of course, that's not with our company, but the whole Southern California area.

Yeah, so we will be -- we will be filing, putting those into the Catastrophic Event Memorandum accounts as well as certainly relying on our insurance coverage as well.

Right.

Okay. Thank you.

Mm-hmm.

Thank you. Once again, ladies and gentlemen, I would like to remind everyone that you may listen to a rebroadcast of this conference at 5:00 p.m. Eastern Time, today, through November 6th at midnight. By dialing 719-457-0820 or 888-203-1112 and enter the pass code 659986. That does conclude today’s question-and-answer session. I would like to turn the call back over to management for any additional or closing comments.

Okay. Thank you, and, again, thank you all for the -- to the participants for your great questions and listening. And your continued interest in American States Water Company as an investment. Thank you all.

Thank you.

That concludes today's conference call. Thank you for your participation. You may disconnect at this time.